What percentage of the property's original value triggers the cancellation of PMI?

What percentage of the property's original value triggers the cancellation of PMI?

• A. 80%
• B. 75%
• C. 78%
• D. 85%

Answer: (C)

The cancellation of Private Mortgage Insurance (PMI) is triggered when the borrower reaches a certain equity threshold based on the original value of the property. In most cases, PMI can be canceled when the equity in the property reaches 20%, which corresponds to a loan-to-value (LTV) ratio of 80%. However, specific guidelines state that PMI can be canceled automatically when the loan balance reaches 78% of the original property value, ensuring that the lender's risk is minimized. This specific percentage is typically established by federal regulations, which allow homeowners to request cancellation when reaching 80% equity, but the automatic termination occurs when the balance is at 78%. Therefore, reaching this percentage ensures that the borrower has gained sufficient equity in the home, minimizing the bank's exposure and allowing the borrower to eliminate PMI costs.

The cancellation of Private Mortgage Insurance (PMI) is triggered when the borrower reaches a certain equity threshold based on the original value of the property. In most cases, PMI can be canceled when the equity in the property reaches 20%, which corresponds to a loan-to-value (LTV) ratio of 80%. However, specific guidelines state that PMI can be canceled automatically when the loan balance reaches 78% of the original property value, ensuring that the lender's risk is minimized.

This specific percentage is typically established by federal regulations, which allow homeowners to request cancellation when reaching 80% equity, but the automatic termination occurs when the balance is at 78%. Therefore, reaching this percentage ensures that the borrower has gained sufficient equity in the home, minimizing the bank's exposure and allowing the borrower to eliminate PMI costs.